Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 8 Exclusion for fringe benefits to address personal security concern

Outline of chapter

8.1 Schedule 8 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) to exclude from reporting, fringe benefits provided to address certain security concerns relating to the personal safety of an employee, or an associate of the employee, arising from the employee's employment.

Context of amendments

8.2 The provision of a benefit by an employer to an employee (such as residential burglar alarms and drive-by security patrols) to protect against general or specific security risks, when not engaged in business activities, are generally fringe benefits subject to fringe benefits tax (FBT).

8.3 The taxable value of a fringe benefit may be reduced by the application of the 'otherwise deductible' rule. However this rule will generally not apply to personal security protection of a person and their family at their home as it is regarded as a private expense and therefore is not deductible to the employee.

8.4 Consequently, under Part XIB of the FBTAA 1986, the employee may have a reportable fringe benefit amount arising from the fringe benefit provided.

8.5 An employee's reportable fringe benefits total for a year of income is the sum of each of the employee's reportable fringe benefit amount for the year of income, where this sum is more than $1,000 ^[1] . This enables the employee's reportable fringe benefit amount to be taken into account in income tests in order to determine entitlement to income-tested government benefits (eg, family tax benefit), liability to tax surcharges (eg, the Medicare levy surcharge) and income-tested obligations (eg, child support payments).

8.6 On 8 September 2005, the then Minister for Revenue and Assistant Treasurer announced that the Government would amend the law so that employers who provided personal security services to employees who had received threats due to their line of work would not have to report these fringe benefits on the employee's payment summaries (the reporting exclusion).

8.7 The Government is providing this reporting exclusion because some employees require certain security services outside of employment as a result of a credible threat of attack to them or their associates by reason of their employment.

Summary of new law

8.8 Schedule 8 amends section 5E of the FBTAA 1986 so that a fringe benefit provided to address a security concern:

•

relating to the personal safety of the employee, or an associate of the employee; and

•

arising in respect of the employee's employment,

is an excluded fringe benefit, subject to certain conditions.

8.9 For the reporting exclusion to apply, the provision of a fringe benefit to address a security concern must be consistent with a threat assessment made by a person recognised to be competent to make threat assessments by a relevant industry body, government body or the Commissioner of Taxation (Commissioner).

Comparison of key features of new law and current law

Detailed explanation of new law

A security concern relating to personal safety

8.10 For the purposes of this provision, a security concern only exists if the facts and circumstances establish a basis for concern in relation to the personal safety of an employee, or an associate of the employee. [Schedule 8, item 1, subparagraph 5E(3)(l)(i)]

8.11 Examples of concerns for the personal safety of an employee, or associate, might arise from (but are not restricted to) a threat of death, kidnapping, assault or serious bodily harm.

8.12 Concerns that do not relate to the personal safety of the employee, but rather relate more to the property of the employee, will not satisfy the requirements for claiming a reporting exclusion.

A security concern that arises in respect of employment

8.13 Under the FBTAA 1986, 'in respect of', in relation to the employment of an employee, includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment. [Schedule 8, item 1, subparagraph 5E(3)(l)(ii)]

8.14 'Employment', in relation to a person, means the holding of any office or appointment, the performance of any functions or duties, the engaging in of any work, or the doing of any acts or things that results, will result or has resulted in the person being treated as an employee.

8.15 'Employee' means a current employee, a future employee or a former employee. 'Current employee' means a person who receives, or is entitled to receive, salary or wages. A 'future employee' means a person who will become a current employee. A 'former employee' means a person who has been a current employee.

8.16 For the purposes of the reporting exclusion, a security concern relating to the personal safety of the employee must arise in respect of the employee's employment.

Example 8.1

Catherine, an employee of a business, has received threats from an identified source because of work duties done by her on behalf of the business.

On the basis of these threats, Catherine's employer has sought advice from a security expert. The security expert, having given consideration to the facts and circumstances surrounding these threats, advises following a security assessment that there is a significant risk to Catherine's safety.

These threats to Catherine would form the basis for a security concern under paragraph 5E(3)(l).

8.17 This is irrespective of whether the security concern arises in respect of the employment of a former, current or a future employee.

Example 8.2

Continuing on from Example 8.1, Catherine subsequently ceases working for the business and is now a former employee for the purposes of FBT.

Given her operational knowledge of the business the security expert concluded that a security concern still exists in relation to Catherine's safety.

This security concern arises in respect of Catherine's employment for the purposes of subsection 5E(3).

8.18 Certain public officials and certain proprietors and employees of businesses may have security concerns which arise due to the nature of their responsibilities and the contacts that they make in the course of their duties or which arise because of their operational duties. Consequently a security concern may arise, for the purposes of the reporting exclusion, in the absence of demonstrated threats from identified individuals or parties.

8.19 A security concern exists where there is a risk to the employee's personal safety specifically connected to the nature of the work carried on by the employee, regardless of whether there were direct threats from identified individuals or parties.

Example 8.3

Anupam is a senior public official responsible for law enforcement. There is some history of personal security risks associated with that position. While he has not been subject to a direct threat to his life, his safety may be at risk due to his responsibility for the management of operational matters within his jurisdiction.

Subject to the threat assessment, this could form the basis for a security concern under section 5E by virtue of the nature of Anupam's employment.

A fringe benefit provided to address a security concern

8.20 The proposed exclusion would only apply to fringe benefits that directly address the security concern. [Schedule 8, item 2, paragraph 5E(3)(l)]

8.21 Security measures that address a security concern would emerge from the threat assessment process and would form part of the recommendations of the threat assessment (see below).

8.22 Fringe benefits that are not consistent with a threat assessment carried out by the recognised security consultant would not be eligible for this reporting exclusion.

8.23 Depending on the nature of the threat assessment, types of security measures that address security concerns might include (but are not restricted to) an employer-provided residential burglar alarm, drive-by security patrols, personal bodyguards, personal protective equipment and protective modifications to a motor vehicle.

8.24 Fringe benefits that do not address a security concern are not excluded from reporting.

Example 8.4

Continuing from Example 8.3, given that the security risks relating to Anupam, form the basis for a security concern under section 5E, his employer engages a security expert from within the agency to make a threat assessment. Protective measures to Anupam and his family at his home are based on the recommendations of the recognised security expert.

The employer-provided protective measures that are subsequently provided include home security systems and drive-by patrols. The amounts arising from these fringe benefits would be excluded from reporting.

8.25 Where the security concern relating to an employee or associate has ended, any fringe benefits provided to them would not be excluded fringe benefits. The security concern may end where the basis for the security concern no longer exists.

Example 8.5

The security concern relating to Catherine, from Example 8.2, has subsequently ended as the identified source of the security risk has since been arrested and incarcerated. The security expert, in reviewing the threat assessment, is of the view that a security concern no longer exists. The employer continues to provide fringe benefits to protect Catherine at her home after the security concern has ended. The amounts arising from these fringe benefits would no longer be excluded fringe benefits.

Threat assessment

8.26 It is commonplace for employers to undertake threat assessments to address security risks before providing protective measures.

8.27 A fringe benefit would only be an excluded fringe benefit where its provision is consistent with a threat assessment and that threat assessment is made by a person who is recognised as being competent to make threat assessments by the relevant industry body, government body or the Commissioner. [Schedule 8, item 2, subsection 5E(6)]

8.28 For the purpose of the reporting exclusion, the threat assessment must be made in relation to the relevant employee or associate. The threat assessment would identify and analyse the facts and circumstances relating to the security concern and provide advice on measures to treat the security concern.

8.29 It is expected that the threat assessment would be based on (or consistent with) the relevant Australian/New Zealand Standard or equivalent industry standard practices.

8.30 This requirement ensures that the types of benefits provided to the employee would not be unrelated to the identified security concern or disproportionate to the security concern faced by the employee.

8.31 The threat assessment is not required to take an approved form.

8.32 It is recognised that there will be situations where, for various reasons, employers will need to provide fringe benefits to employees to address a security concern prior to the completion of the threat assessment.

8.33 An employer who provides fringe benefits to address a security concern prior to the completion of the threat assessment will not be precluded from excluding those fringe benefit amounts from reporting once the threat assessment has been made. The fringe benefits must still be consistent with the threat assessment.

8.34 Where fringe benefits are provided to address a security concern in the absence of a threat assessment, the employer will need to report the fringe benefit amounts on the recipient employee's payment summary. However, should these fringe benefits subsequently meet the conditions to be an excluded fringe benefit, the employer may correct an amount, on a payment summary, based on the procedures set out by the Commissioner.

Example 8.6

Benjamin is an employee of a business which provided him with fringe benefits to address a perceived security risk to his personal safety in the 2004-05 income year. The reportable amounts arising from those fringe benefits were reported on his payment summary at the time.

The employer subsequently became aware of the paragraph 5E(3)(l) reporting exclusion. The employer would be required to seek a threat assessment in relation to Benjamin concerning the fringe benefits provided so that the amounts on the payment summary can be corrected.

A person recognised as being competent to make threat assessments

8.35 A fringe benefit would only be an excluded fringe benefit where its provision is consistent with a threat assessment, in relation to the employee or associate. This threat assessment must be made by a person who is recognised to be competent to make threat assessments by the relevant industry body, government body or the Commissioner.

8.36 There are varying licensing and oversight conditions for the security industry in different jurisdictions. As such, the conditions concerning the competency of the person making the threat assessment are designed to operate in light of the different circumstances in each jurisdiction.

8.37 Relevant industry bodies would only include organisations or associations that are capable of, as a part of their business operations, accrediting or recognising the competency of persons to carry out threat assessments. In some jurisdictions, these would often be government approved organisations or associations.

8.38 Under the FBTAA 1986, 'government body' means the Commonwealth, a State, a Territory or an authority of the Commonwealth, a State or a Territory.

8.39 Relevant government bodies would include only government bodies that could carry out threat assessments as a part of their business operations or which recognise or accredit the competency of persons to carry out threat assessments as a part of their business operations.

8.40 In the absence of a relevant industry body or a relevant government body, the Commissioner has the discretion to recognise a person as being capable of carrying out threat assessments.

8.41 In exercising this discretion, the Commissioner will take into account the qualifications and experience of the person seeking to make the threat assessment and whether the person's qualifications and experience would be equivalent to a person recognised by the relevant industry or government body as being competent to make the threat assessment.

8.42 It is expected that a person, in demonstrating their competence to make a threat assessment, would have completed tertiary or vocational qualifications in security risk management. The experience and qualifications of a competent person may have been acquired internationally.

Application and transitional provisions

8.43 The amendments in relation to this reporting exclusion apply retrospectively from 1 April 2004. [Schedule 8, item 3]

8.44 The retrospective application of the amendments can affect the entitlement to income-tested government benefits, liability to tax surcharges and income-tested obligations in past years.

8.45 Applying the amendments retrospectively from 1 April 2004 addresses the concerns of individuals affected by the application of the current law by excluding from reporting fringe benefits provided to address certain security concerns.